When the time comes to invest back into your business, one the biggest steps you will take as a small business is hiring your first employee. Where many small business owners’ lose sight of this important consideration is the true value and long-term value this course of action can have on their business.
Yes, hiring your first employee will increase your weekly or monthly cost because now you have more responsibilities and commitments to your employee. You are now on the hook to pay another person a salary weekly, bi-weekly or monthly despite the success of the business. Hiring support opens doors and many new opportunities for growth.
The day to day responsibilities of entrepreneurship can leave you guessing when it comes to what you need for tax season. Tax time is never that much fun so, this year, make sure you don’t leave out any crucial information.
You can start now with a simple checklist:
1. File the correct tax form
Sole proprietors and single-member LLCs report business income and expenses on Schedule C that is attached to your Form 1040 Individual Tax Return.
If your business is a partnership or multi-member LLC, you’ll be required to report business income and expenses on Form 1065. S corporations report business activity on Form 1120-S. Then the partnership, LLC or S corporation issues a Schedule K-1 to its shareholders, reporting their share of the entity’s income, deductions, and credits.
2. Provide business information
When preparing to file your annual tax return, you will need to provide some basic information, including your business legal name, social security number, and address. If you have filed for an Employer Identification Number (EIN) with the IRS for your business, you will need it as well.
If addition, make sure the name on your tax return matches the name on file with the Social Security Administration – otherwise, it can cause a delay with your refund.
3. Get your receipts out of the box
Keeping your accounting records in order throughout the year can make it a lot easier to prepare your annual tax return.
If you have a professional tax preparer or accountant, one of the first things they will ask you for is your bookkeeping records, such as your journal entries, list of revenue and expenses, bank and or credit card statement, profit and loss statement and balance sheet.
4. Understand the Home Office deduction
One very common business deduction for small business owners involves the home office deduction. You may be eligible if you use your home regularly and exclusively for business. You can find the full instructions for Form 8829, Expenses for Business Use of Your Home, for more details on whether you qualify.
5. Be clear on deductions for your business vehicle
Another common deduction associated with small business owners is car expenses. It is important that if you drive your own car, you need to keep an accurate log of your mileage for business use. The IRS will not allow a deduction for business use of a vehicle without a record of miles driven for business. Your log may be kept manually or electronically.
The IRS Form W-9 is important for small business owners. You will need this whenever you hire an independent contractor for your business. It’s a good idea to have all independent contractors complete this form before you pay them.
As a company you will use the information provided by the independent contractor to prepare the Form 1099-MISC, reporting to the Internal Revenue Service the amount of income that was paid to the independent contractor by your company.
The W-9 form also contains boxes to check showing how the contractor’s business is legally organized. This includes sole proprietor, C Corporation, S Corporation, Partnership, or Limited Liability Company. When contractors sign the W-9, they certify under penalty of perjury that they have completed the form correctly. They also certify they are not subject to backup withholding and are a U.S. citizen. The IRS states that anyone that receives payment of $600 or more over the course of a tax year needs to fill out the Form W-9. The best rule in practice is to collect the form anytime you pay someone for anything, even if it’s below the $600 threshold.
The Form W-9 does not have to be filed with the IRS. It will be important to maintain the signed form in your files.
Completing Form W-9 is pretty straightforward. The contractor should just indicate the business name and their employer identification number (EIN), also known as the tax ID number. When the form is completed, the contractor is certifying to the IRS that the tax ID number being provided is correct and accurate.
When running your own business you may have to hire independent contractors and this process requires you to track and maintain files in order to run an effective and compliant business. Make no mistake, your business staff and management team should have a clear understanding of what the W-9 form is and when to use it.
3 Top Benefits to Outsourcing For Small Businesses
While you might think that only large and multinational corporations - can benefit from outsourcing, small businesses can potentially realize even bigger outsourcing benefits because of how many new jobs are actually being created within smaller companies. According to the Small Business Administration, companies with less than 500 employees account for almost 65 percent of new private sector employment.
Outsourcing refers to the way in which companies entrust the processes of their business functions to external vendors or small businesses. There are many benefits of outsourcing your business processes.
Building a business includes more than just picking a location, developing a business plan, building a website or picking your social media platform. Some of you may be asking what could be more important. Well, I'm here to tell you that opening a business bank account should be on your top 5 of "things to do" list. Having a business checking account can help you deal with tax, legal and practical issues. Many business owners choose to manage their business and personal finances within the same bank account for the purpose of convenience and but fail to realize the advantages that come with managing a separate business account.
A major reason that companies use bank accounts is for internal control. Here are a couple of the control advantages of using bank accounts:
Keep in mind, the Internal Revenue Service (IRS) is really picky about business owners being able to show that their business is really a business and not a hobby. Basically, you have to show a profit on Federal Tax Form Schedule C three years out of every five. Having a separate business bank account established further proves you are a business and not a hobby business.
As your business grows, it becomes critical to build a proper legal and financial foundation. Opening a separate bank account is one small step in that direction, and will help keep your accounting records organized.
It’s not every day entrepreneurs think about the accounting processes within their business. Accounting is not all about just collecting revenue but more so about the steps it takes to ensure the process to collect money does exist and is clear to the leaders and staff.
There are no shortages of details to consider when you’re a small business owner. Getting the back-office basics of accounting in order can make or break a business as it exist in any phase -- start-up, growth or expansion. Let's think about it, fees alone can be “atrocious” thus many experts recommend using an accounting software that will capture all accounting aspects of the business. It is important to pick a software that will suit your business needs not those of a colleague or friend. I say this because what is good for one business owner may not be good for another.
However, if you are a business that cannot afford the cost of an accounting software and would rather maintain control in Excel worksheets then it's highly recommended a procedure guide is developed. The guide will provide direction and transparency to an important process within your business.
Get your small business in order by starting with these accounting tips:
1. One of the obvious and repeated suggestions is separating business and personal expenses. When it’s time to tally up deductible expenses, you want to be ready. Start today!
2. Understand when it’s time to pay for support. Choosing to hire a consultant or outsource a part of your business process can make a big difference. Not only do you get some of your time back to use on bigger projects you are also investing someone who speaks the professional language in those specific areas.
3. Dedicate time to update your records. Many business owners may choose not to hire a professional consultant to support with updating their accounting records or performing data entry. However, this decision can make a difference in the business.
4. Follow Up on Invoices and Receivables. Many business owners still invoice their customers and wait for payment. It will be key to plan for necessary follow-up calls to ensure the expected revenue remains consistent as budgeted.
These accounting tips are all great ways to make small changes. In the beginning, it probably is not necessary to hire an account full-time. The best way to manage in the beginning is by outsourcing the accounting services which enables you to pay only for the exact accounting support your startup needs.
Remember that proper, responsible time management of any task, especially accounting, is key. Fontenot & Associates Solutions LLC, specializes in accounting and operations services because we understand and recognize the importance of accounting processes and strive to be a part of the solution to building successful businesses, one at a time.
As a business owner, have you ever felt left out of a conversation when others start to talk about their financial statement reports? When you start to hear words such as, P&L, profit and loss, statement of earnings or income statement --- the conversation may start to feel a bit awkward and overwhelming. That’s why we’re going to dive into how to understand more these statements.
Understanding the income statement is essential to business owners and investors as it provides an overview of the profitability and future growth of your business. All business owners should see the income statement as a simple and straight forward report on a business’s cash generating ability. It is a scoreboard on the financial performance of your business that reflects when sales are made and expenses are incurred.
The official definition says an income statement is:
A financial statement generated monthly and/or annually that reports the earnings of a company by stating all relevant revenues (or gross income) and expenses in order to calculate net income. Also referred to as a profit and lost statement.
The income statement is one of the five financial statements issued by a business. It reports the amount a corporation has earned during the period between two balance sheet dates.
Here are 3 things you should know about an income statement:
Income Statements come with Accounting Jargon
One thing that can make entrepreneurs shy away from financial statement conversations is the jargon used. The jargon can make it seem more complex than it really is. For example, the term “sales” or “income” might be used instead of revenue. “Expenses” and “costs” are also used interchangeably. “Profit” is sometimes called “net income.
Income Statements cover a period of time
The income statement reveals how much money your business made over a period of time. Most often, the statement will reflect the performance over a month, a quarter or a year.
For example, you might hear the words, year to date, or see “Y-T-D December 31”, indicating the period for Jan 1 to Dec 31.
Income Statement follows a formula
Every income statement, no matter how complex, follows a very simple formula.
Revenue – Expenses = Profit
For the period specified on the income statement, it will show the revenue the business earned, the expenses it incurred and the profit it made.
If you want to understand how your business operations flows, the income statement can help give you a better picture of what makes your company profitable and where the losses are coming from.
Acquiring new customers is expensive and time-consuming. As a matter of fact, research shows that attracting new customers is 5X more expensive than keeping your existing customers. One of the most effective ways to increase your revenue is to invest more time with your existing customers.
In the early stages of building your business, you use marketing to attract new customers. Once you land a steady flow of customers, your work has just begun. As a small business owner, you need to keep customers coming back. This is why marketing to existing customers is essential for your small business.
Don’t let customer relationships fizzle out after the first sale. We have identified four methods you can use to invest more into your existing customers and to help keep them coming back.
Tip 1: Stay in Contact
Most of the time, your customers are not at your business. It’s important to stay visible by building brand awareness and marketing when you customers are not around.
Tip 2: Address customer needs
When you operate as a small business, you have an advantage over the larger corporations by offering a personal experience. What problems can your business solve for existing customers?
Find out what the customer expects as soon as possible. Ask open-ended questions during your earliest conversations and listen to understand customer perception. Open-ended questions are those that require something more than just a simple "yes" or "no" in response.
Tip 3: Collect data
Data is gold when it comes to marketing to existing customers. You can use data to personalize marketing strategies for current customers.
Find out your customers’ opinions by collecting feedback. For example, you could send a follow up email to a customer to ask if they are satisfied with your product or service. Have a place where customers can submit feedback. Also, set up a process to let customers know how you fill use feedback.
Tip 4: Add Complementary Services to Existing Products
Adding complimentary services or products may help you gain new clients, as well as maintain existing ones. Review the products of your competitors for ideas.
Tip 5: Set up a loyalty program
A loyalty program rewards existing customers for returning to your business. Creating a loyalty program also connects customers to your business.
A loyalty program rewards customers for buying from your business. Set up a loyalty program for your business to encourage customers to keep coming back. Since they draw current customers back to your business, loyalty programs increase your revenue while rewarding customers.
These are just a few tips on how to get more revenue from your existing customers. By implementing these simple tips, you will soon see opportunities you can use to develop or enhance your customer service policies and procedures. The best part about reflecting on your existing processes, is that your customers will benefit and feel that they are appreciated.
Make this a focus of your marketing efforts and you will soon see the rewards come back in the form of increased referrals and increased sales.
Cash doesn’t always flow how you need it to. It can start from customers who pay late to suppliers who have suffered some kind of setback. Building a cushion in your bank account isn't a complicated concept, instead of having just enough to pay bills and staff it is time to have a larger amount in the account. An amount that will not only allow for timely payments of monthly billings but enough to transfer into savings. Maintaining a smooth cash flow requires juggling many aspects of the business such as staying on top of “pending cash”, also known as accounts receivable, to -
Cash flow is the life of an organization, it’s a means to pay salaries, buy supplies and make stock investments. As the statistics have shown, owners who cannot efficiently manage their business cash flow are almost certain to fail. To improve cash flow and sustain growth it will be important to build a cash cushion. Having cash reserves enables companies to cope with a business disruption, deal with seasonality, and manage slow-paying customers. It allows a business to take advantage of new opportunities should they arise, and plan for future growth by having investment capital available.
Here are just a few tips on how to business owners can boost their cash flow:
The efforts to implementing meaningful changes within the business will be a combination of lessons learned. Building and keeping an adequate accumulation of cash provides maximum opportunity and flexibility to any business.
Fontenot & Associates Solutions, LLC recommends identifying the method or strategies which work for your business culture. Building a stable business for long term means having sufficient liquidity and a developed and executed form of policy and procedures with clear defined goals.
It goes without saying that working with numbers and understanding how to interpret them, is a key part to managing a business.
When you sell a product or service and generate a dollar of revenue, that economic exchange is captured through either the receipt of cash or through selling “on account”. When you sell “on account”, you create Accounts Receivable which is revenue earned, but not yet collected in cash.
If you think about it, you have actually used Accounts Receivable your whole life. If you’ve ever earned a paycheck, you’ve used accounts receivable: just think, you performed work for your employer and you were paid, most likely, weekly or twice a month. You have performed work for your employer and weekly or twice a month, you are waiting to be paid for those services performed.
When in business, at a high-level Accounts Receivable is important because it affects your cash flow. It matters because it is always important to keep inflow greater than you outflow, but Accounts Receivable is sort of part a no man’s land between inflow and outflow. This is why, in the beginning of starting a business and definitely before making sales “on account”, the terms of repayment need to be outlined and explained to your customers. The typical payment cycle for goods or services ranges 30 to 90 days.
Accounts Receivable should be best managed on a consistent and routine basis. Regardless of your software or system, a process should be developed and implemented to ensure timely payments is the business overall expectation. This expectation should be known not only by customers but your support team as well.
Inconsistent and spotty attention to the task can starve a businesses’ growth, while a steady and smooth process results in a business foundation capable of achieving all of its goals.
Has this aspect of your business become overwhelming? Would you like to develop a new Accounts Receivable policy? Schedule a free consultation with us.
My mission is to offer the best accounting and operations solutions and tips for entrepreneurs and small to mid-size companies worldwide seeking to close their process gaps with actual solutions.